The U.S. initiative, which was announced by President Bush in January, has been greeted with enthusiasm by Central American leaders. Such an agreement would provide guaranteed long-term access to the U.S. market for Central America's exports of agricultural and manufactured goods, such as textiles and garments.

In the year 2000, Central America sent 43% of its exports to the United States.

Central America already has duty-free access for a wide range of exports under the Caribbean Basin Trade Recovery Act (CBTRA).

A full-fledged FTA with the U.S. will mean reciprocal access for U.S. imports to Central American markets.

Some domestic agricultural and industrial businesses in Central America are worried about their ability to compete with duty-free imports and are predicting possible employment losses if adequate transitional measures are not put in place.

A U.S.-Central America FTA would probably cover other areas as well, such as investment, competition and government procurement, which are included in NAFTA (North American Free Trade Agreement) and the proposed FTAA (Free Trade Area of the Americas).

Significantly, the U.S. did not offer the Caribbean Community (CARICOM) an FTA at the meeting held in The Bahamas in early February.

Statements by the U.S. Foreign Trade Representative indicate that the priorities for 2002 are the passage of Trade Promotion Authority, conclusion of free trade agreements with Chile and Central America and securing developing countries' participation in a new round of WTO negotiations, among others.

This may mean a subtle shift in the Administration's FTAA strategy. In recent months several stumbling blocks have appeared in the way of timely conclusion of the FTAA negotiations: mainly Brazilian scepticism, the Argentine economic meltdown, and difficulties with Congress in securing approval of TPA.

While officially committed to maintaining the momentum of the FTAA process, the U.S. Administration may also be pursuing an "expanding circle" strategy, in effect building a hemispheric free trade zone by degrees, starting with Chile and Central America and perhaps the Andean Group.

It is not yet clear what such a strategy may mean for the quest for special treatment for small economies within the FTAA.

Much depends on the terms of the bilateral FTAs that may be negotiated with the U.S.

If a U.S.-Central America FTA provides for reciprocal, symmetrical market access then there will be increased pressure on the other smaller and less developed countries in the hemisphere to do the same.

On the other hand if concessions are secured in key areas such as flexibility in the application of norms, safeguards, longer periods of transition and areas of non-reciprocity, this could be a valuable precedent in negotiations involving CARICOM, the Dominican Republic and the Andean Group.

The CARICOM-Central America Summit in early February agreed that the two groups should work more closely together in exchanging information and coordinating positions in international trade negotiations. This could prove to be of value in the upcoming U.S.-Central American FTA negotiations.

The agreement between the two sub-groups could not have come at a better time.